Knowledge that Transforms

Companies are increasingly realizing the need to coordinate their manufacturing and remanufacturing operations. This can be a challenge due to the inherent variability in the condition and amount of returns, which has a direct impact on remanufacturing costs and leadtimes. In this paper, we develop a modeling framework to compare two alternative strategies that use either manufacturing or remanufacturing as the primary means of satisfying customer demand. Of course, in the event that the demand cannot be met by the prioritized process, the secondary process is used as a contingency. In our basic model, the priority decisions are made at the component level in replenishing the serviceable inventory, while the disposal and new component ordering decisions are made independently. The second model represents the coordination of remanufacturable and new component inventory control decisions. Using simulation‐based optimization on a large number of experiments, we observe that when prioritization is in the upstream echelon and there is no coordination in managing component stocks, there exists a critical return ratio, below which it is beneficial to give priority to manufacturing and above which it is beneficial to give priority to remanufacturing. We also see that coordinated control of the component inventories considerably reduces the importance of prioritization. These observations remain valid when congestion in the shop floor is also taken into account. We also study the benefits of state‐dependent dispatching policies in a realistic case.

We analyze a scenario where a manufacturer with a traditional channel partner opens up a direct channel in competition with the traditional channel. We first consider that in order to mitigate channel conflict the manufacturer, who chooses wholesale prices as a Stackelberg leader, commits to setting a direct channel retail price that matches the retailer's price in the traditional channel. We find that the specific equal‐pricing strategy that optimizes profits for the manufacturer is also preferred by the retailer and customers over other equal‐pricing strategies. We next consider the implications of the equal‐pricing constraint through a numerical experiment that indicates that the equal‐pricing strategy is appropriate as long as the Internet channel is significantly less convenient than the traditional channel. If the Internet channel is of comparable convenience to the traditional channel, then the manufacturer has tremendous incentive to abandon the equal‐pricing policy, at great peril to the traditional retailer.

We explore the value of information (VOI) in the context of a retailer that provides a perishable product to consumers and receives replenishment from a single supplier. We assume a periodic review model with stochastic demand, lost sales, and order quantity restrictions. The product lifetime is fixed and deterministic once received by the retailer, although the age of replenished items provided by the supplier varies stochastically over time. Since the product is perishable, any unsold inventory remaining after the lifetime elapses must be discarded (outdated). Without the supplier explicitly informing the retailer of the product age, the age remains unknown until receipt. With information sharing, the retailer is informed of the product age prior to placing an order and hence, can utilize this information in its decision‐making. We formulate the retailer's replenishment policies, with and without knowing the age of the product upon receipt, and measure the VOI as the marginal improvement in profit that the retailer achieves with information sharing, relative to the case when no information is shared. We establish the importance of information sharing and identify the conditions under which substantial benefits can be realized.